Historically, in India and most of the world, electrical utilities have been supply-side oriented with primary emphasis on the improvement of efficiency and management in the supply side. This was the need of the hour in the initial years after our independence. A host of measures were taken to expand the system capacity, including generation, transmission and distribution, to meet the rapidly growing demand for electricity. This situation is, however,changing with the on-set of reforms in India. There is growing optimism that the mindset of the past will give way to a more balanced and symmetrical approach towards generation, T&D and improvements in end-use efficiency among customers.
The problems of the Indian power sector can be traced to three root issues – unacceptably high T&D losses, large commercial losses due to poor billing, metering,collection and energy theft, and low end-use efficiency of energy use.
India is facing peak power capacity shortages as well as energy shortages.Chronic power shortages have resulted in involuntary load shedding and installation of captive generation by consumers. If we wish to reach electrical power to all by 2012, as per ‘Mission 2012’, launched by the Government of India, we have to add another about 1, 00,000 MW of generation capacity. Do you have an idea of the capital investment required for this activity? It isapproximately Rs. 10 lakh crore (@ of approx. Rs. 10 crore / MW, taken for the power to reach end users). If we take the loan/equity ratio as 70:30, the total equity required would be Rs. 3 lakh crore. This, as you can well understand, is a massive capital expenditure for a developing country like ours. The question, therefore, is: Are there any other ways of attaining the goal of power to all?
The answer is that there is a clear role and potential for utility driven DSM programmes in India. It is estimated that the end-use efficiency improvement potential in the industry and building sector alone is of the order of Rs.10,000 crore and Rs. 2000 crore per year, respectively. There is now widespread agreement that the restoration of the financial health of the power sector can only be enabled by energy efficiency improvements and demand side initiatives. Improving the energy efficiency and demand side management are especially needed in countries like ours where large scale addition to power generation capacity is not always feasible, due to financial and other constraints. Therefore, it is very important to ensure that what is generated is distributed in a way that maximizes social benefit.
Moreover, the energy efficiency of the Indian economy is very low. You have studied in previous Unit of this course that India’s energy intensity per unit of GDP is very high by global standards although in terms of Purchasing Power Parity, the energy intensity of India is lower than that of USA and the world average.However, there exists a substantial scope for energy savings. The trends of increasing global liberalization and growing international competition have made energy efficiency and productivity improvements, including energy cost reduction, a necessity for economic success.While energy efficiency and demand side management techniques have been tried and tested elsewhere, in India itself the awareness is very limited. Even the tariff structure adopted by State Electricity Boards does not adequately reflect application of such systems. You should, therefore, first understand:
What is DSM?
What is Demand Side Management?
Although the term may be used in a broader sense, here we shall explain it chiefly in terms of a utility-driven programme.
Concept of Demand Side Management
Demand Side Management or DSM is the process through which a power utility manages the demand for power/energy among some or all its customers to meet its current or future needs.It comprises all planning, implementing, and monitoring activities and measures designed to improve efficient use of energy and encourage consumers to modify their level and pattern of energy usage.
DSM is an intervention by a utility on the “customer side of the meter” to change the way customers use electricity.It is used, generally, to optimise available and planned generation resources and involves
• using existing energy supplies more efficiently and improving efficiency of energy use;
• reduction in the total quantity of energy consumed by users through better load management;
• energy conservation measures for using lesser energy to produce similar or greater output and minimising losses in existing processes
of energy production and use;
• resource and/or technology substitution, i.e., altering the mix of a given energy system by replacing less efficient fuels with more efficient fuels or by introducing new technologies that are more efficient;
• structural changes by shifting away from high energy-intensive industries to high capital- or labour-intensive industries or by changing lifestyles that encourage excessive energy consumption;and
• reduction in the demand for energy (e.g., electricity or gas) at peak times when energy supply system is strained and to shift demand
from peak to off-peak times.
The problems of the Indian power sector can be traced to three root issues – unacceptably high T&D losses, large commercial losses due to poor billing, metering,collection and energy theft, and low end-use efficiency of energy use.
India is facing peak power capacity shortages as well as energy shortages.Chronic power shortages have resulted in involuntary load shedding and installation of captive generation by consumers. If we wish to reach electrical power to all by 2012, as per ‘Mission 2012’, launched by the Government of India, we have to add another about 1, 00,000 MW of generation capacity. Do you have an idea of the capital investment required for this activity? It isapproximately Rs. 10 lakh crore (@ of approx. Rs. 10 crore / MW, taken for the power to reach end users). If we take the loan/equity ratio as 70:30, the total equity required would be Rs. 3 lakh crore. This, as you can well understand, is a massive capital expenditure for a developing country like ours. The question, therefore, is: Are there any other ways of attaining the goal of power to all?
The answer is that there is a clear role and potential for utility driven DSM programmes in India. It is estimated that the end-use efficiency improvement potential in the industry and building sector alone is of the order of Rs.10,000 crore and Rs. 2000 crore per year, respectively. There is now widespread agreement that the restoration of the financial health of the power sector can only be enabled by energy efficiency improvements and demand side initiatives. Improving the energy efficiency and demand side management are especially needed in countries like ours where large scale addition to power generation capacity is not always feasible, due to financial and other constraints. Therefore, it is very important to ensure that what is generated is distributed in a way that maximizes social benefit.
Moreover, the energy efficiency of the Indian economy is very low. You have studied in previous Unit of this course that India’s energy intensity per unit of GDP is very high by global standards although in terms of Purchasing Power Parity, the energy intensity of India is lower than that of USA and the world average.However, there exists a substantial scope for energy savings. The trends of increasing global liberalization and growing international competition have made energy efficiency and productivity improvements, including energy cost reduction, a necessity for economic success.While energy efficiency and demand side management techniques have been tried and tested elsewhere, in India itself the awareness is very limited. Even the tariff structure adopted by State Electricity Boards does not adequately reflect application of such systems. You should, therefore, first understand:
What is DSM?
What is Demand Side Management?
Although the term may be used in a broader sense, here we shall explain it chiefly in terms of a utility-driven programme.
Concept of Demand Side Management
Demand Side Management or DSM is the process through which a power utility manages the demand for power/energy among some or all its customers to meet its current or future needs.It comprises all planning, implementing, and monitoring activities and measures designed to improve efficient use of energy and encourage consumers to modify their level and pattern of energy usage.
DSM is an intervention by a utility on the “customer side of the meter” to change the way customers use electricity.It is used, generally, to optimise available and planned generation resources and involves
• using existing energy supplies more efficiently and improving efficiency of energy use;
• reduction in the total quantity of energy consumed by users through better load management;
• energy conservation measures for using lesser energy to produce similar or greater output and minimising losses in existing processes
of energy production and use;
• resource and/or technology substitution, i.e., altering the mix of a given energy system by replacing less efficient fuels with more efficient fuels or by introducing new technologies that are more efficient;
• structural changes by shifting away from high energy-intensive industries to high capital- or labour-intensive industries or by changing lifestyles that encourage excessive energy consumption;and
• reduction in the demand for energy (e.g., electricity or gas) at peak times when energy supply system is strained and to shift demand
from peak to off-peak times.
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| Important Features of Demand Side Management |
DSM can be achieved by
• enhancing energy efficiency, which is the reduction of kilowatt hours(kWh) of energy consumption, and
• demand load management, which is the reduction of kilowatts (kW) of power demand or the displacement of demand to off-peak times. Programmes for awareness generation, customer or vendor rebates for efficient equipment, etc. belong to the first category, which also includestechnology changes and consumer behaviour changes. For example, an energy conservation measure such as replacing incandescent lights with more efficient compact fluorescent bulbs is an example of a technology change(Fig.). Similarly, using a thermostat operated electric geyser is a better technology option than the immersion rod for heating water. Consumer behaviour changes such as reduced energy use (Fig.) or shift in the timings of appliance use can be brought about through a variety of incentives by the utility.
• enhancing energy efficiency, which is the reduction of kilowatt hours(kWh) of energy consumption, and
• demand load management, which is the reduction of kilowatts (kW) of power demand or the displacement of demand to off-peak times. Programmes for awareness generation, customer or vendor rebates for efficient equipment, etc. belong to the first category, which also includestechnology changes and consumer behaviour changes. For example, an energy conservation measure such as replacing incandescent lights with more efficient compact fluorescent bulbs is an example of a technology change(Fig.). Similarly, using a thermostat operated electric geyser is a better technology option than the immersion rod for heating water. Consumer behaviour changes such as reduced energy use (Fig.) or shift in the timings of appliance use can be brought about through a variety of incentives by the utility.
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| DSM Involves Changes in (a) Technology and (b) Consumer Behaviour |
The second category includes measures such as peak clipping, load shifting, strategic conservation or strategic load growth, time-of-use tariffs, interruptible tariffs, direct load control, etc. We shall discuss these aspects in greater .There are several reasons why power utilities should adopt DSM activities, chiefly arising from its benefits. This is what you will learn now. But first you may like to fix the concept of DSM in your mind.
Why DSM?
The most common rationale for Demand Side Management (DSM) in the power sector is that it is often more cost effective and socially beneficial to reduce or manage electricity demand through investment in efficiency and other demand side measures than to increase power supply or transmission capacity. Reductions in energy demand and consumption at the end user’s premises can free up electricity generation, transmission and distribution capacity at a fraction of the costs required to provide new capacity.For some DSM measures, the cost of saved energy has been estimated to be as low as 10% of the cost of added capacity.
Thus, DSM permits existing generation capacity to meet the needs of a larger number of consumers and defers or reduces the need for new capacity. The potential benefits to be derived by promoting end-use energy efficiency and adopting DSM in India are:
i) possibility of availability of nearly 15,000 MW through reduced energy usage due to enhanced end-use efficiency;
ii) saving potential of 30-35% each in industry and agriculture by retrofitting with efficient equipment/ pump sets;
iii) saving potential of 25-30% in commercial / Government establishments and residential houses;
iv) enhanced customer service;
v) reduced operational costs; and
vi) creation of new revenue streams.
Apart from the above factors, power utilities in India should undertake DSM because of the following reasons:
• demand for power far outstrips the capability to provide supply, particularly peak supply;
• utilities can improve their cash flow revenues, and improve the quality and reliability of power supply; and
• they can also mitigate the impact of rising tariffs on the subsidised customers.
The strategic value of DSM and energy efficiency lies essentially in their ability to improve the financial cash flow of Indian utilities. The natural laws of financing require that revenues from electricity sales are used to service debt interest payments and principal due on capital loans. If the flow of revenue is choked on account of commercial and technical losses in distribution and poor end-use efficiency, the ability of the utility to attract private investments towards financing Independent Power Providers or other utility services is severely undermined.
Economies are also realized on the capital account. Studies in India and elsewhere on the cost-effectiveness of DSM have reported that saving onemegawatt of power costs about 1/5 th to 1/10 th of the capital investment needed to generate an equivalent megawatt in a power plant.Thus, there is an imperative need for adopting energy saving measures and demand side management to mitigate power shortages and drastically reduce capital needs for power capacity expansion.
You have learnt that the savings achieved through improved energy efficiency and DSM reduce the need for capital investments as well as fuel, mining,transportation, water and the real estate required to set up new power plants.Other benefits of DSM include reduced pollution, reduced price volatility,improved reliability of the electric grid, improved resilience against accidents, and reduced bills for customers.
SEBs and privately owned utilities have ample motivation to pursue demand management to the extent that it can
• improve service (e.g., through improving voltage profiles);
• increase revenue (e.g., through reducing power theft); and
• decrease cost (e.g., through reducing peak demand).
It is very expensive for utilities in India to purchase power to serve peak demand, whether it be from outside suppliers (generally from other SEBs,although IPPs will be playing a larger role in the future) or oil-fired peaking units (which are still relatively uncommon). Throughout much of India, power to meet peak needs is sometimes not available and the demand goes unmet – a situation that has unpleasant social and economic consequences.Elsewhere, peak demand is met but at a high financial cost.The motivation for DSM in a power utility also stems from the following factors:Dwindling reserve margin of current capacity.
Avoiding financial risk associated with capacity expansion, for example,due to
•increased construction costs,non predictability of institutional debt markets, and scepticism of institutional debt markets.
Uncertainty over future of independent power.
Environmental issues such as
•siting/Land use,air/Water quality, and
•acid rain and environmental pollution.
Triggering pressure by regulatory bodies and vested interest action groups.
Economic attractiveness when viewed in a societal benefit-cost context.Improved public image and relationship with customers.
In the current regime of tariff rationalization by the state regulatory agencies, end-use efficiency improvements through DSM at the customer end could mitigate the adverse impact of increased rates on residential, commercial and agricultural customers. At the same time, DSM can help industries to be placed more competitively in increasingly open markets in the age of globalization. In addition, support for energy efficiency at its customers’ installations could bring a utility into closer contact with its clients, often resulting in better service, and allowing a more efficient future planning process.
In the developed countries, there are examples of DSM services that have reduced load by over 1,700 MW and saved customers more than USD 7 billion in energy costs, protected the environment by eliminating over 126 million tons of carbon dioxide emissions – equivalent to taking 1.7 million cars off the road each year. One such service in the USA analysed over five million households through on-line, mail-in and on-site energy audits throughout North America, provided energy analysis and implementation services for more than six billion square feet of commercial and industrial floor space, and designed a wide variety of incentives and energy saving programmes for residential, commercial and industrial customers.DSM can thus be looked upon as a partnership between the utility, the customer and the society with benefits to all (Table).
Why DSM?
The most common rationale for Demand Side Management (DSM) in the power sector is that it is often more cost effective and socially beneficial to reduce or manage electricity demand through investment in efficiency and other demand side measures than to increase power supply or transmission capacity. Reductions in energy demand and consumption at the end user’s premises can free up electricity generation, transmission and distribution capacity at a fraction of the costs required to provide new capacity.For some DSM measures, the cost of saved energy has been estimated to be as low as 10% of the cost of added capacity.
Thus, DSM permits existing generation capacity to meet the needs of a larger number of consumers and defers or reduces the need for new capacity. The potential benefits to be derived by promoting end-use energy efficiency and adopting DSM in India are:
i) possibility of availability of nearly 15,000 MW through reduced energy usage due to enhanced end-use efficiency;
ii) saving potential of 30-35% each in industry and agriculture by retrofitting with efficient equipment/ pump sets;
iii) saving potential of 25-30% in commercial / Government establishments and residential houses;
iv) enhanced customer service;
v) reduced operational costs; and
vi) creation of new revenue streams.
Apart from the above factors, power utilities in India should undertake DSM because of the following reasons:
• demand for power far outstrips the capability to provide supply, particularly peak supply;
• utilities can improve their cash flow revenues, and improve the quality and reliability of power supply; and
• they can also mitigate the impact of rising tariffs on the subsidised customers.
The strategic value of DSM and energy efficiency lies essentially in their ability to improve the financial cash flow of Indian utilities. The natural laws of financing require that revenues from electricity sales are used to service debt interest payments and principal due on capital loans. If the flow of revenue is choked on account of commercial and technical losses in distribution and poor end-use efficiency, the ability of the utility to attract private investments towards financing Independent Power Providers or other utility services is severely undermined.
Economies are also realized on the capital account. Studies in India and elsewhere on the cost-effectiveness of DSM have reported that saving onemegawatt of power costs about 1/5 th to 1/10 th of the capital investment needed to generate an equivalent megawatt in a power plant.Thus, there is an imperative need for adopting energy saving measures and demand side management to mitigate power shortages and drastically reduce capital needs for power capacity expansion.
You have learnt that the savings achieved through improved energy efficiency and DSM reduce the need for capital investments as well as fuel, mining,transportation, water and the real estate required to set up new power plants.Other benefits of DSM include reduced pollution, reduced price volatility,improved reliability of the electric grid, improved resilience against accidents, and reduced bills for customers.
SEBs and privately owned utilities have ample motivation to pursue demand management to the extent that it can
• improve service (e.g., through improving voltage profiles);
• increase revenue (e.g., through reducing power theft); and
• decrease cost (e.g., through reducing peak demand).
It is very expensive for utilities in India to purchase power to serve peak demand, whether it be from outside suppliers (generally from other SEBs,although IPPs will be playing a larger role in the future) or oil-fired peaking units (which are still relatively uncommon). Throughout much of India, power to meet peak needs is sometimes not available and the demand goes unmet – a situation that has unpleasant social and economic consequences.Elsewhere, peak demand is met but at a high financial cost.The motivation for DSM in a power utility also stems from the following factors:Dwindling reserve margin of current capacity.
Avoiding financial risk associated with capacity expansion, for example,due to
•increased construction costs,non predictability of institutional debt markets, and scepticism of institutional debt markets.
Uncertainty over future of independent power.
Environmental issues such as
•siting/Land use,air/Water quality, and
•acid rain and environmental pollution.
Triggering pressure by regulatory bodies and vested interest action groups.
Economic attractiveness when viewed in a societal benefit-cost context.Improved public image and relationship with customers.
In the current regime of tariff rationalization by the state regulatory agencies, end-use efficiency improvements through DSM at the customer end could mitigate the adverse impact of increased rates on residential, commercial and agricultural customers. At the same time, DSM can help industries to be placed more competitively in increasingly open markets in the age of globalization. In addition, support for energy efficiency at its customers’ installations could bring a utility into closer contact with its clients, often resulting in better service, and allowing a more efficient future planning process.
In the developed countries, there are examples of DSM services that have reduced load by over 1,700 MW and saved customers more than USD 7 billion in energy costs, protected the environment by eliminating over 126 million tons of carbon dioxide emissions – equivalent to taking 1.7 million cars off the road each year. One such service in the USA analysed over five million households through on-line, mail-in and on-site energy audits throughout North America, provided energy analysis and implementation services for more than six billion square feet of commercial and industrial floor space, and designed a wide variety of incentives and energy saving programmes for residential, commercial and industrial customers.DSM can thus be looked upon as a partnership between the utility, the customer and the society with benefits to all (Table).
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| Benefits of DSM |
This partnership has to be facilitated by the Central and State governments and the Regulatory Commissions, the other stakeholders in this programme.The adoption of DSM measures should give an option to power utilities for Integrated Resource Planning (IRP). This will help them conduct economic evaluations of the various potential energy efficiency projects, package these projects, prioritize the projects in terms of their economic benefits to the power utilities and the Indian economy and consider various implementation strategies.
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